Articles Posted in The Means Test

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Soldier bypassing means testRecently, the U.S. House of Representatives voted to pass the The National Guard and Reservist Debt Relief Act of 2011 (H.R.2192). This bill is an extension of a 2008 version of the bill with the same name. The currently existing law helps soldiers qualify for Chapter 7 bankruptcy by allowing those on active duty to bypass the means test.

Soldiers would more easily qualify for a Chapter 7, because they can now bypass the means test. The means test requires the court to look at the debtor’s income and compare it to an average income for the same family size. If the debtor’s income is above average, then the filing a Chapter 7 is presumed a fraudulent abuse of the system as the debtor makes too much money to not pay any debts back. The debtor presumed fraudulent can then either file a Chapter 13 bankruptcy or pursue a non-bankruptcy option. The National Guard and Reservist Debt Relief Act of 2008 dictates that those in active duty for at least 90 days do not have to overcome any fraud analysis. They automatically qualify for a Chapter 7 regardless of how high their income is.

The justification behind the bill is that oftentimes these soldiers are called upon on short notice, requiring them to leave higher paying jobs to travel to remote locales to defend America. This may lead to soldiers having to maintain more than one household. Again, to qualify under this bill, reserve members must have been on active duty for 90 days or more since September 11, 2011. You can also qualify during the 540 days following activation.

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Filing for bankruptcy can be very confusing for those trying to go it alone. As an in-depth legal process, it is greatly beneficial to have a Jacksonville Bankruptcy Attorney to help you navigate your way through a successful bankruptcy. Here are some reasons why:

1. There are many calculations that must be done correctly. To file for bankruptcy, you must first know which Chapter you qualify for, a Chapter 7, 13, 11 or 12. One step to figuring it out is by completing a Means Test. This is complex thing to do. You must know things which deductions you can use for food, clothing, personal care, health care, housing, and many more. You’ll need to how the allowances for vehicles work and what involuntary deductions you can take. You must know how to list future debt payments correctly. And the list goes on and on. Without the proper knowledge and skill, this can be very difficult to do right the first time. If you do not do this correctly, the court could dismiss your case without a discharge, penalize you with fines or in rare cases, even send you to jail. Hiring a Jacksonville Bankruptcy Attorney would be beneficial because someone with knowledge and experience would be handling these issues, taking the stress off of you.

2. Another daunting task is drafting a Chapter 13 Plan. This Plan is very important, as it outlines your responsibilities over a three to five year period. You must know which creditors get paid, how much is required to go to unsecured creditors, and how to allocate the Trustee’s portion. You want to make sure that you get all the benefits you can through your Plan. It is not the job of the Court or Trustee to watch out for your interest, it is there job to be sure that the code is being applied properly.

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Though few Jacksonville bankruptcy filers make a million dollars a year, it is still possible for such a debtor to get a discharge in a Chapter 7 liquidation bankruptcy. In 2005 Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) which instituted all sorts of hoops debtors now have to jump through to successfully file a Chapter 7 bankruptcy. The most common “hoop” is known as the “Means Test“.

The Means Test requires under 11 U.S.C. § 707(b) that a debtor whose debts are primarily consumer show that their gross income is less than the average gross income for their family size in their geographic region. Let me say that again in English, “If your debts are mostly from non-business transactions you have to prove to the court that you, your spouse and one kid make less than the average married couple with one kid in Jacksonville.” Most people skip over the first part of this paragraph and focus on the income and family size. However, if you can show that your debts are primarily non-consumer or “Business related” debts you can bypass the means test altogether. For example, if you make $1,000,000 a year and you are a family size of one, you far exceed the median income as stated by the IRS, but if you can show that your debts are more business than consumer, you can file Chapter 7 anyway.

This loophole was put into place by Congress to encourage businesses. We’ve all heard stories of a large percentage of small business failing within their first year. Apparently Congress heard this too and decided to allow business debtors to file Chapter 7 instead of forcing them into a long, costly Chapter 13 to encourage people to take risks and open businesses. Whether it is actually good for the economy is up for debate, but Congress thought so, so we now have the 11 U.S.C. § 707(b) exception to the means test.

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The Jacksonville Bankruptcy court is part of the Middle District and a Middle District Court ruled on October 11, 2011 that Social Security benefits need not be included in either the Means Test or in the disposable monthly income (DMI) paid to unsecured creditors in a Chapter 13.

To quote the Honorable Judge Steele:
“Therefore, a Chapter 13 plan need not provide that social security benefits be included as projected disposable income which will be applied to payments for unsecured creditors.” See Vandenbosch v. Waage

Now we know that Social Security funds will not be used in calculating Chapter 13 payments, but what about cases that have already been filed? Judge Steele stated in his opinion that these benefits, “need not… be included as projected disposable income”. I would analyze this to say that they can be included if the debtor desires or needs to use the funds to show that they can fund a plan to overcome the “Good Faith” requirement of Chapter 13, but that the debtor cannot be required to use these funds if the debtor chooses not to.

What is yet to be seen is whether we can reduce payments on already confirmed plans that contemplated including the social security as income on Form B22C (Means Test). The court requires that a plan be modified if there is a, “change of circumstances” as to income. Historically, this meant an increase or decrease of income, not a reclassification of what income means. I take the position that this is a change of circumstances sufficient to justify a modification, though we will have to wait and see.
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For those of you who don’t know, a Chapter 13 requires you to make payments to your creditors, typically from 3 to 5 years. What most people don’t know is that there are two different payoff schemes in a Chapter 13, the Disposable Monthly Income (DMI) plan and the 100% plan. Which plan you get depends on the facts of the situation but it basically works as follows:

In a DMI plan, your monthly payment to the trustee for unsecured creditors is calculated based on your monthly income minus the established by the IRS reasonable and necessary living expenses allocated to your family size. The idea is that you get to keep enough money to live, which is important, but that any money you earn in excess of living must be paid to your creditors. This is the more difficult plan to succeed in, as it requires you to go a number of years living off of the IRS standard, which requires a strict budget. This plan cannot get paid off early unless it’s first transformed into a 100% plan, which would only happen if you had a significant increase in income.

In a 100% plan, your monthly payment to the trustee is calculated based on your total debt rather than your monthly income. We add all of your debts together, add 10% to pay the trustee (see how the bankruptcy trustee gets paid), and divide the total by the number of months you need to pay (typically 60 months/5 years). This payment is less than what your DMI payment would be. If the payment is higher, then you should be a DMI plan instead of a 100% plan. Since you’re paying 100% of your debts in this plan, you can pay off your bankruptcy early.

When in a Chapter 13 bankruptcy you have an ongoing obligation to report any increase or decrease in your gross income. You also must annually provide a copy of your tax return to the trustee. Changes in your income will require recalculation of your plan, which can increase or decrease your plan payment. Changes in your income can also mean the difference between your being a DMI plan and a 100% plan.
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A means test dictates what chapter of bankruptcy you qualify for. This is a very important part of your case, and a Jacksonville Bankruptcy Attorney will make sure that it is done correctly. The attorney will input your income for the prior six months and then take deductions for the things allowed by law. Knowing what deductions can be taken and how to accurately calculate them is extremely important, as this will lower your disposable monthly income amount.

Your disposable monthly income number is one of the most important things in your bankruptcy case. This number dictates whether you can file for a Chapter 7 bankruptcy or if you must file for a Chapter 13 bankruptcy. Also, if you file for Chapter 13 bankruptcy, your disposable monthly income number will dictate how much money you must pay to unsecured creditors in your Chapter 13 Plan.

The means test can be very tricky, you really need to know what you are doing to get an accurate test. If it is not done correctly, the trustee will file an objection in your case. We offer means testing here at Law Office of David M. Goldman. Contact a Jacksonville Bankruptcy Attorney today for your free consultation.

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With few exceptions, qualifying for a Chapter 7 Bankruptcy requires a debtor to show that their household income is less than the median household income for the same family size in their region. These amounts are updated and changed each year by the IRS. In Florida the numbers currently are as follows:

Household Size Median Income
1 $40,029
2 $50,130
3 $54,594
4 $65,135

*For each additional member beyond 4, add $7,500.

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Marriage may be a blessed arrangement that brings us together, but with financial problems being one of the most common reasons for divorce, it makes sense to try and clear up any of those issues from earlier in your life before tying the knot.

When BAPCPA (the Bankruptcy abuse prevention and consumer protection act) passed in 2005, new requirements were imposed on debtors wanting to qualify for Chapter 7 bankruptcy. One of those requirements was 11 USC 707(b) or the “means test”. 707(b) requires a debtor to show that their gross income for their family size is less than the median income for a family of the same size in their geographic region. These median income charts are made available through the IRS and are updated annually.

Generally, if a debtor’s household income for their family size is higher than the median, that person is not eligible for a Chapter 7 (liquidation) bankruptcy and must instead file a Chapter 13 (reorganization) bankruptcy. Defining income is usually not difficult, the IRS defines gross income under 26 USC 61, and most everyone has had experience with it as we’ve almost all paid our taxes based on it.

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When you file for Chapter 13 bankruptcy, you will pay off your debts through a Chapter 13 Plan that lasts anywhere from 3-5 years. A Chapter 13 Plan allows a debtor to catch up on most any debt, including mortgage arrearages, owed taxes, missed payments on vehicles, HOA dues, legal fees, fines owed to the city or state, and more.

Your unsecured creditors might also get some payments through the Chapter 13 Plan. If they will and how much will they receive is determined by your means test and the amount of unexempt property that you have. Any amount of unsecured debt that you have over this amount will be discharged at the successful conclusion of your Chapter 13 bankruptcy. For example, if you owe $20,000 in unsecured debt and your case only dictates that you must repay $5,000 to unsecured creditors, the $15,000 balance gets discharged or forgiven when you successfully complete your Chapter 13 Plan. If your case dictates that no money must be paid to unsecured creditors, then the entire balance of $20,000 would be forgiven.

To see how a Chapter 13 Plan would be structured for your specific situation, contact a Jacksonville Bankruptcy Attorney today for a free consultation.

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Yes. You must disclose all sources of income on your bankruptcy schedules. You can, however, put on the schedules that this support is not likely to continue in the future, but you must disclose any monies received in the prior six months from any source. Some income, however, is exempt from counting towards your Current Monthly Income calculation as reported on the means test. Some social security income, unemployment income, pension income, etc. will not count towards your Current Monthly Income. Your Ponte Vedra Bankruptcy Attorney will know how to list your income so it will be most beneficial to you. Contact us today at 904-685-1200.

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